Relying on Section 251(b)(5) and its interpretation in Roam-Tel Partners v. AT&T Mobility Wireless Operations Holdings Inc., Cigna argued that its right to the merger consideration vested when the merger was consummated and United extinguished Cigna's shares ( (Del. Ch. Dec. 17, 2010)). Section 251(b)(5) requires that the merger agreement state "the cash, property, rights or securities" that the stockholders are to receive for their shares. In Roam-Tel, the Court of Chancery interpreted this obligation as a duty that could not be made subject to a further condition once the merger is effective.

The defendants argued in response that Section 251 provides wide latitude in structuring a merger. The defendants relied heavily on the term "rights" in Section 251, maintaining that the merger consideration consisted of a bundle of rights that included acceptance of the three additional obligations together with the payment of cash consideration. By this theory, all the "rights" under Section 251 became effective at the closing of the merger, including the contractual conditions to payment of the consideration. The defendants added that these obligations must be seen as a bundle because the offer price would have been lower if the obligations had not been included. They also pointed out that the merger agreement mentioned the letter of transmittal, and that the letter was therefore not a new undertaking.

The Court acknowledged the likelihood that the price was negotiated on an assumption that the stockholders would agree to the conditions, but stated that Section 251 does not provide the unlimited flexibility that the defendants sought. The Court considered it a strained reading of the statute to interpret the word "rights" as "obligations," which was effectively how the defendants had asked to read it. More likely was that the word "rights" in the context of Section 251 was meant to connote benefits to the stockholders. As a practical matter, the Court noted that acceptance of the defendants' reading would allow buyers to impose any range of provisions on stockholders as conditions precedent to payment of the merger consideration, including, as in this case, a wide-ranging release that the stockholders had no way of anticipating from the mere reference in the merger agreement to a letter of transmittal.

The Court added that had it been vital to the defendants for each stockholder to agree to the obligations, they could have structured the acquisition as a stock purchase agreement so that each stockholder would sign the acquisition agreement and agree to the obligations directly. The fact that the defendants chose to structure the transaction as a merger rather than a stock acquisition had to have legal significance.

The defendants argued against the notion that acceptance of the indemnification obligation should be seen as an undertaking of the corporation's debts. They argued, rather, that the indemnification obligation was similar to an escrow agreement, which is widely understood to be permissible, and that striking down the indemnification obligation would similarly endanger the enforceability of escrow agreements.

The Court agreed that generally, an indemnification obligation that claws back consideration already paid is mathematically no different than an indemnification escrow arrangement that holds back full payment until the end of the escrow period. The Court distinguished this particular obligation, though, because of the complete lack of temporal and monetary limitations on the indemnification obligation for breaches of fundamental representations. The Court noted that if the defendants' analogy to an escrow agreement were extended to its logical conclusion, the escrow structure would be a 100% indefinite escrow, which is hardly market practice.

Instead, the Court found that the indemnification obligation here was more analogous to a post-closing price adjustment, which is permissible if it satisfies the requirements of Section 251. Section 251(b) allows the terms of the merger agreement to be made dependent upon facts that are ascertainable outside the four corners of the agreement. The Court in Aveta v. Callieri interpreted this statute at length and held that a post-closing price adjustment was permissible in a case where it was based on the target company's financial records and included a dispute-resolution mechanism with a final calculation made by an accounting firm (23 A.3d 157 (Del. Ch. 2010)). In contrast, the indemnification obligation in the Audax merger agreement:

The Court acknowledged that the indemnification obligation may have in name complied with the "facts ascertainable" provision of Section 251(b), but that in fact, the value of the merger consideration was not ascertainable due to the uncertain amount of money potentially subject to the clawback and the indefinite time of the clawback. Because the indemnification obligation continued indefinitely, Cigna could never know the exact value of its merger consideration.